Movers and SHAKERS
Two crashes too many for the Boeing 737 MAX
(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the "Balanced" section)
On March 10th, Ethiopian Airlines Flight 302 experienced problems shortly after takeoff, struggled to ascend at a stable speed, and then crashed killing all 157 people on board. This follows the disturbingly similar incident that occurred last October in Indonesia when Lion Air Flight 610 crashed shortly after takeoff killing all 189 passengers. In both instances, the pilots were flying a brand-new Boeing 737 MAX.
The 737 MAX is the fastest-selling airplane in Boeing (BA) history with about 5,000 orders from more than 100 customers worldwide. The model has completed thousands of successful flights and was widely considered by industry experts to be a safe aircraft. Nevertheless, following the crash of Flight 302 the U.S. Federal Aviation Administration (FAA) moved to temporarily ground the entire global fleet of 371 Boeing 737 MAX aircrafts. On Friday April 5th, Boeing’s CEO Dennis Muilenburg acknowledged that both incidents were caused by the same malfunction and accepted responsibility for the crashes saying, “We own it”. Boeing says the malfunction that caused the crashes can be fixed, but will it restore the public’s faith in air travel?
Bad for Boeing, bad for the industry. There is truly no bull side to this tragedy. We can only hope that we can learn from these incidents and improve the safety of air travel. These crashes are not only bad for Boeing, but they are bad for the entire industry including competitors like Airbus. Hopefully, these tragedies will inspire a higher degree of scrutiny on not only the aircrafts themselves, but also the process by which they are certified and approved.
The problem is fixable. The investigation results are still preliminary, but early results indicate that both crashes were likely caused by the same malfunction in its anti-stall system called MCAS. The investigation suggests that the stall-prevention systems were erroneously triggered forcing the planes into a nosedive from which the pilots were unable to manually override despite their best efforts. Boeing plans to release a software update and further pilot training guidelines to prevent future crashes, but the aircraft will remain grounded until the safety of the 737 MAX is an absolute certainty. According to Boeing, once the software update is implemented the 737 MAX will be among the safest aircrafts ever to fly.
Two unsuccessful flights are two too many. To have two failures from the same model potentially caused by same source signals a fundamental flaw in our international air safety procedures. Some have speculated that Boeing, a major contractor with the US military, may have used its government influence to rush the 737 MAX through the FAA safety approval process in order to get the new model to market and compete with the similarly popular Airbus A320. The two crashes will likely introduce a higher degree of scrutiny and skepticism toward both Boeing and aerospace regulators. Even though the software fix may pass inspection, the damage to the reputation of Boeing and to the aerospace industry has already been done.
Cutting Production. In its recent announcement, Boeing indicated that it will take until late April at the very least before they are able to engineer, test, and approve an acceptable software fix. As a result, Boeing plans to cut the production rate of 737 MAXs to 42 planes per month down from 52 per month rather than raising production to 57 planes per month as the company had planned. Boeing CEO Dennis Muilenburg pledged to work with suppliers to minimize the operational disruption that these production cuts might have on the many 737 MAX suppliers along the aerospace supply chain. The financial impact on the suppliers will likely be mixed. Spirit AeroSystems, a tier-one supplier, plans to continue production at the original rate of 52 planes per month by working with Boeing to manage its accumulated inventory storage. Companies providing engine content may actually use the slowdown to catchup on delayed orders. Other companies may be able to avoid losses by coordinating with Boeing and using clever supply chain strategies. However, if the software certification process drags on longer than expected, aerospace suppliers along the supply chain could be negatively impacted.
The 737 Max will likely fly again. Southwest and American Airlines, two of the biggest customers of the 737 MAX model, suffered significant losses due to flight cancellations and losses in operational capacity related to the 737 MAX grounding. Despite these losses, the companies have both indicated that they still have faith in the safety of the aircraft and believe that Boeing will be able to implement a sufficient fix. It may take a month or more, but the 737 MAX will likely get airborne once again.
Boeing’s Grounded 737 Max: The Story So Far, Kyunghee Park, Bloomberg News, April 2, 2019
Between Two Deadly Crashes, Boeing Moved Haltingly to Make 737 MAX Fixes, Andy Pasztor, Andrew Tangel and Alison Sider, Wall Street Journal, April 1, 2019
Flawed analysis, failed oversight: How Boeing, FAA certified the suspect 737 MAX flight control system, Dominic Gates, The Seattle Times, March 21, 2019
Why Investigators Fear the Two Boeing 737s Crashed for Similar Reasons, James Glanz, Rebecca Lai and Jin Wu, The New York Times, March 13, 2019
From 8,600 Flights to Zero: Grounding the Boeing 737 Max 8, Denise Lu, Allison McCann, Jin Wu, and Rebecca Lai, The New York Times, March 13, 2019
Boeing Identifies Second Software Issue on 737 MAX, Robert Wall and Andy Pasztor, The Wall Street Journal, April 5, 2019
Boeing to Cut 737 MAX Production, Doug Cameron, The Wall Street Journal, April 5, 2019